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Feds plan changes in U.S.-China tech trade

Proposed rules would potentially subject more categories of goods to restrictions but are designed to streamline.

WASHINGTON--American high-tech products that have traditionally escaped restrictions on exports to China could be scooped up in an upcoming proposal outlined Friday by a Bush administration official.

Speaking at the Center for Strategic and International Studies here, Undersecretary of Commerce David McCormick said his department plans in the coming weeks to release preliminary rules spanning 47 categories of technology goods. The new policy appears to deal exclusively with China and not other countries for which the United States has historically regulated exports.

Export controls, a product of the Cold War era, are intended to limit the shipment and sales of goods that could pose national security threats if obtained by certain countries of concern. Some of the policy surrounds "dual use" items that could have both civilian and military applications, including high-performance computers and encryption products.

Do we have the kind of ability or the intelligence neccesary to figure out which companies do have connections to the military and which ones don't?
--Adam Segal, senior fellow, Council on Foreign Relations

The proposed rules sketched out on Friday appear in part to be a response to a recent report released by the Commerce Department's Office of Inspector General (click for PDF), which called on the government to beef up export restrictions to China. The report said loopholes in existing policy could be putting "sensitive U.S. commodities" in Chinese hands for the development of "conventional weapons."

That means other, as-yet-unregulated technologies may also be worth scrutiny, McCormick indicated. "U.S. policy should facilitate sales of American-made semiconductors to companies in China for use in stereos or a child's Game Boy, but not for advanced missile systems or submarines," he said.

Paring down the list
That development could prove displeasing to technology companies which have argued in the past that export controls have resulted in barriers to increasing legitimate trade with China. A number of technology trade associations and companies contacted by CNET on Friday were unable to grant interview requests. An Intel representative said the chipmaker would decline comment until the final rules are published.

When asked by, McCormick said it was premature to elaborate on the forms of technology that would be covered by the proposed rules, although he acknowledged that "a lot of these things can be used for consumer purposes." In earlier remarks, he mentioned broad categories, such as avionics, semiconductor equipment and electronics, as falling into that set. He emphasized that "the estimated cost in lost markets from this restriction is small" compared to gains in security.

Government analysts have attempted to pare down the list to only those technologies "that would actually contribute to military modernization," McCormick said. He said the government welcomes feedback on the proposal, which will be open for comment for 120 days after it is published in the Federal Register.

At the same time, the new approach is designed to streamline the process by which American companies traffic in those goods with Chinese businesses, McCormick said. Rather than having to obtain licenses certifying that their products comply with the cumbersome demands of U.S. export control regulations, they would be allowed to trade freely with anyone on a list cleared by the U.S. government.

Such businesses would earn eligibility to buy from American tech companies only if they hold up to "very specific criteria" and "demonstrate an established record of nonproliferation and responsible civilian use of U.S. imports," he said. The government will continue to do "on-the-ground spot checks" in hopes of preventing supplies from being diverted to military end users.

One question that remains is the feasibility of compiling such a list. "Do we have the kind of ability or the intelligence neccesary to figure out which companies do have connections to the military and which ones don't, given how complicated ownership structures and the origins of companies are?" asked Adam Segal, a senior fellow on China studies for the Council on Foreign Relations. "Is that going to involve companies that are private that do some defense contracting, which is increasingly the way companies are working?"

As China, the world's fourth-largest economy, has become a particularly attractive market for U.S. technology companies, the nation should be exploring ways to expand trade while looking out for security, McCormick said.

He acknowledged in his speech that the China's record on intellectual property and human rights--including free expression on the Internet, a topic that garnered attention from Congress earlier this year--leaves much to be desired. But "none of those concerns preclude a very real commitment to try to increase legitimate civilian high-tech trade," he said.